[tranthao1989]

Dear sir,
It is from question.

“It is thought that combining the two companies will result in several benefits. Free cash flows to firm of the combined company will be $216 million in current value terms, but these will increase by an annual growth rate of 5% for the next four years, before reverting to an annual growth rate of 2•25% in perpetuity.”

[tranthao1989]

Dear sir,
FCFF of combined company is 216 m in Y0. (Current value term). Why answer does not inculde it in order to caculate FCFF (only caculate FCFF from Y1 onward) ?

Thanks sir

[tranthao1989]

Thank you so much for your kindness.
I will note from next time to post my question in correct forum.^-^

[tranthao1989]

Please advice me about this matter.
Thank you in advance.

[tranthao1989]

Dear sir
Per question pe =24 and it will be exercise in the future (within 2years).
I think it should be discounted to PV in order to caculate cost of project. Therefore Pa should be 24/1.1^2 +4.
(Same as example Pandy Inc in BPP textbook P196
– they discounted cost of investment at Y5 to Y0).

[tranthao1989]

Dear sir,
I understood that i can use risk free rate in this case, is it correct?
If it is correct, which rate should i use ( 10 yrs goverment debt yield 2.5% OR goverment treasury bill 2% ?
Thank you in advance
Tran Thao

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